Table of Contents

• Introduction
• The most common questions about Short Sales, FAQ’s
• The Mortgage Crisis, “How did we get here”
• Why most Short Sales get declined
• Making sure your Short Sale gets approved
• The proper documentation before submission
• Default Timelines
• Testimonials

Introduction  TOP

My name is Joe Dueñas and on behalf of my team welcome to our world…. a world full of challenges and a passion in finding solutions for today’s homeowner.

But first, it’s important that I tell you congratulations…..

With any challenge it can be stressful but the way to empower yourself is to align yourself with information and people who have successfully walked your path before you. This brief packet I am providing you should be enough to guide you in a direction to see if a short sale is right for you.

“…..I have been involved in 3 different real estate cycles and have consistently refined this process!....”

“This is not meant to be a complete or exhaustive article about Short Sales or Foreclosures. Nor am I giving legal advice in any way. All the details and intricacies about Short Sales and Foreclosures would require hundreds of pages and I encourage you to do additional research about the subject and get professional advice”. However, I am including over 40+ of the most common questions clients ask. I am also one of the few professional agents that most lawyers, consumers and fellow peers turn to for solutions with the sale of their home.

After you read my Short Sale FAQ’s, if you have additional questions about the Short Sale process or need help with your specific case, please call or email me at joe@joeduenas.com or 949-632-3819.

Most common questions (FAQ’s)  TOP

1. What is a Short Sale?
2. What type of situation is the short sale best for?
3. How does a homeowner benefit from a short sale?
4. Why would a bank or mortgage lender want to do a short sale?
5. Will a short sale “save my house”?
6. Will a short sale “save my credit”?
7. I am in foreclosure, is a short sale for me or do I qualify for a short sale?
8. I am NOT in foreclosure and have missed no payments, can a short sale work for me or do I qualify for a short sale?
9. What if my mortgage is an FHA...or HUD...or VA mortgage?
10. What other options might I have at this point?
11. What is "Financial Hardship" and why is it so important?
12. Who owns the house after a short sale?
13. What do I do about my back property taxes when I do a short sale?
14. Can I short sale my own house?
15. Can’t I just go down to my branch or mortgage broker and talk to them about reducing my mortgage?
16. Do you handle houses in my area?
17. Do you handle duplexes, apartment buildings, condos or commercial property?
18. My house is already listed for sale on the MLS but isn’t selling; can I do a short sale?
19. My house is really nice, why is the short sale offer so low?
20. Should I accept a short sale offer from an investor?
21. My Real Estate Agent doesn’t know about or doesn’t recommend a short sale, what do I tell him/her?
22. How much does it cost me for you to do a short sale on my house?
23. Is my house too cheap or too expensive to do a short sale?
24. Are short sales guaranteed to work?
25. What if a bank doesn’t accept the short sale?
26. How long does a short sale take, I need to get out now!
27. Why do I have to sign a Borrower’s Authorization?
28. How does the agent make money on a short sale?
29. Do I have to move after I do a short sale?
30. I have heard that I could still owe taxes after a short sale, is this true?
31. Will a short sale help or hurt my credit?
32. I am behind on my mortgage payments, but not yet in foreclosure. Can I do a short sale?
33. My house needs a lot of repair; can you still do a short sale?
34. Can you do a short sale on my house?
35. I have more than 10% equity in my house; can I still short sale to you?
36. My husband/wife/brother/etc. is also on the deed with me but doesn’t want to sell; can I still do a short sale?
37. I have other liens (i.e. mechanics, IRS, court judgments) on my house; can I still do a short sale?
38. I am an heir to an estate that has a mortgage it (or I) can’t afford to pay. Can I do a short sale?
39. I have 2 or 3 mortgages on my house. Can I still do a short sale?
40. Is my house a good candidate for a short sale?
41. I have gotten dozens of cards and letters saying they can help me with my foreclosure, but they never do, how is this different?
42. I have already declared bankruptcy; can I still do a short sale?

1. What is a Short Sale?

A short sale is the process by which a homeowner can sell a house for less money than he actually owes on the mortgage's). This is done by the buyer or investor providing proper documentation to the mortgage lenders to convince them to reduce the mortgage balance to allow the sale. The mortgage lender (or bank) actually takes a loss (or write-off) on the mortgage because the value of the home has fallen below the mortgage balance AND the homeowner is in a poor financial condition that will not allow him to continue to pay on time.

If the bank approves the discount on the mortgage, the home can be sold for a lower price without the seller having to come up with cash to cover the shortfall, and the mortgage is satisfied and the foreclosure process stops.

2. What type of situation is the short sale best for?

Most short sales are done on properties in foreclosure. This means the homeowner is at least 3 payments behind and the foreclosure suit has been filed by one of the mortgage lenders. Recently, more mortgages that are simply behind or "in default" are considered short sale candidates without actually being in foreclosure.

Also, the homeowner typically has negative equity or no equity in the home. In other words, the total balance owed on the mortgages is equal or greater than the price at which the house can be sold. This situation is growing increasingly common due to the easy availability of 100% mortgages (no money down) as well as the recent decline in prices. This is particularly prevalent in the areas, which has a large glut of homes for sale and where prices have declined 10%-30% in the past year.

In addition, the homeowner must have some type of financial hardship that is preventing him from paying the mortgage. This is commonly job loss, medical bills, disability, or a reset in their interest rate that has made their current payment balloon to an unmanageable amount!

A typical situation for a short sale is this:

-Homeowner purchases a home for $600,000 in 2004 for 5% down payment, the mortgage balance is $570,000.

- By 2005, the home's value has increased and interest rates have declined so the homeowner refinances to pull cash out. Home value $660,000, new mortgage $660,000.

- In 2006, homeowner gets laid off and continues to make payments from savings, hoping to land a new job soon.

- By 2007, savings are gone and still no job. Homeowner begins to miss payments and decides to sell the home for $660,000.

-As the months pass, the home has not sold because values have dropped back to $600,000 and the foreclosure process has begun. The Real Estate Agent presses to lower the selling price to entice a buyer, however that would require the homeowner to come up with cash at closing to cover the mortgage shortfall.

-Homeowner is stuck in the house and the foreclosure is proceeding.

If your situation sounds at all like this one, you might benefit from a short sale, Call Joe for a quick analysis right over the phone. 949-632-3819

3. How does a homeowner benefit from a short sale?

First and foremost, it relieves the stress of being in foreclosure and being hounded by the mortgage lender; and it allows homeowners to get rid of their big mortgage payment and move on with their lives. A short sale allows you to stop the foreclosure and get a fresh start. In my experience, this is the primary benefit to homeowners. They are tremendously thankful to just relieve the burden that their home and mortgage have become.
A short sale also prevents additional damage to your credit. Having some late payments and a foreclosure filed has already done damage to your credit. However, a completed foreclosure will do much more damage and lower your credit score tremendously. Obviously, if you have to declare bankruptcy, that is a huge black mark on your credit. A short sale results in the mortgage actually being paid off, which reflects positively compared to a foreclosure.

4. Why would a bank or mortgage lender want to do a short sale?

A common saying is that banks are in the business of lending money and do not want to own real estate. This is slightly misleading but is essentially true. When a bank takes a property back via foreclosure, it is a long and expensive process and often results in holding the property in their inventory as a non-performing asset. Banks have a limit to the amount of non-performing assets they want to hold. Once this limit is exceeded, they have strong incentive to get rid of the properties at discount prices.
For a lender, doing a short sale avoids many of the costs associated with the foreclosure process. Attorney fees, delays from borrower bankruptcy, damage to the property, costs associated with resale, property tax, insurance, etc. all must be paid by the bank during a foreclosure. In a short sale scenario, the lender is able to cut its losses by getting rid of the property faster.

5. Will a short sale “save my house”?

In the sense that you will be able to continue to live in the house, unfortunately no. A short sale is only done involving a legitimate sale of the home from the foreclosed owner to another unrelated party.
Many of the cards and letters you have gotten have probably promised to save your house, however this is very seldom possible. We would recommend that you NEVER sign away your deed to someone who promises to “save your house” from foreclosure. It is probably a scam.

6. Will a short sale “save my credit”?

The short answer is yes and no, a short sale can save you from the worst credit disasters. By defaulting on mortgage payments and having a foreclosure filed against your property, you have already done damage to your credit. Your credit score has declined and those negatives will stay on your credit report for some time. However, it will get much worse if you allow the foreclosure to continue and do not try to short sale the property.
Once a foreclosed property is sold at auction, your credit score is further reduced and when the foreclosure is completed via eviction and repossession of the home, your credit will be even further damaged. If you can complete the short sale BEFORE either of these takes place, then you can prevent that further damage to your credit. In addition, when the short sale is completed, it shows up on your credit as a “Paid” mortgage and a canceled foreclosure, which shows future creditors that you did take care of your obligations. If your situation eventually winds up in bankruptcy, then that is the worst item that could appear on your credit report and it will remain there for years and cause numerous difficulties in getting future credit. A short sale can help avoid this, but the key is not to wait.

7. I am in foreclosure is a short sale for me or do I qualify for a short sale?

Each situation is different and must be evaluated individually. If you believe you fit the basic criteria of: 1. Property in foreclosure or default 2. Personal financial hardship 3. Little or no equity in the property 4. At least 60 days until eviction date Maybe even that the value of the home has declined way below your loan amount.

Again, my service provides an evaluation right over the phone. Call 949-632-3819 Joe Duenas

8. I am NOT in foreclosure and I have missed NO PAYMENTS can a short sale work for me or do I qualify for a short sale?

It is difficult to do a short sale if foreclosure has not been filed but it is possible if a couple of payments have been missed and there is a good hardship story. The lender must be convinced that they will NOT BE REPAID without the short sale.
If you are not in foreclosure and you have not missed any payments, a short sale is probably not likely, but it is possible. The Key is to have a legitimate financial hardship that will keep you from making the payments. A short sale is not just an easy way out of a bad investment. If you are working and your house has just lost some value, that is just unfortunately a bad investment and you are responsible to pay the shortfall.
Short sales are when lenders agree to discount a mortgage for someone who has had legitimate hardships and who has little chance of paying the amount owed. You may be hearing stories that mortgage companies are hurting and they don't want these houses and are giving big discounts away. These stories are mostly urban myths and are not true. In fact, the opposite is happening. Since profits are down, lenders are getting tougher when negotiating prices. They are not letting properties go cheaply and without very good reason. They will try ANYTHING to get you to repay the mortgage in full. A short sale is only a last resort, but I do know how to get lenders to agree to a short sale.

9. What if my mortgage is an FHA...or HUD...or VA mortgage?

Short sales can still be done on all these types of mortgages though each one has different criteria.

10. What other options might I have at this point?

When faced with a foreclosure, some things you may be able to do are:
1. Sell your home through the normal channels
2. Bring your mortgage current by making the missed payments and paying the penalties.
3. Refinance your mortgage with another lender.
4. Attempt a Loan Modification that adjusts the terms of your existing loan.
5. File for bankruptcy

If you can do any of the first 4, then you probably should! Those are usually the best solutions for a homeowner in foreclosure. However, if your situation is such that your house cannot be sold for the amount owed, and you have no money to bring the payments current, and you have no equity to qualify for a refinance, then you should consider a short sale before considering option #5. Again, we encourage you to educate yourself as much as possible about your situation and seek advice from any attorney or CPA you have access to about your choices. We do caution you against paying for the advice of so-called “foreclosure work-out specialists” or other such advisers unless it is by personal recommendation. They normally call me or someone with our system to take on the process.

11. What is "Financial Hardship" and why is it so important?

"Financial Hardship" is a critical part of the short sale equation. No matter what you hear about banks "not in the business of owning real estate", etc.; they DO NOT give homeowners a break easily. They require GOOD REASON to give a discount for a short sale. They have entire departments called "Loss Mitigation", which means their entire job is to reduce the loss the bank takes on a bad loan. Giving big discounts to investors increases the loss on a bad loan, so they don't take it lightly.
The ONLY reason a lender will agree to a short sale is if they determine that the short sale will net the more money that proceeding with the foreclosure. Understanding the homeowner's financial hardship is a big part of the lender estimating whether they will be paid in full for the mortgage.
IF THERE IS NOT A LEGITIMATE FINANCIAL HARDSHIP, A LENDER WILL NOT SHORT SALE EVEN IF THE HOME IS WORTH LESS THAN THE MORTGAGE BALANCE. Quite simply, the lender will make the borrower pay the shortfall if there is no hardship.


Many homeowners try to use a short sale as a "get out of jail free" card to dump their poor investment. Lenders will not allow this and it is a waste of time to try. If you are employed and have some assets, but you have simply lost value on your home and want to sell, YOU PROBABLY CANNOT SHORT SALE. If you are current on your mortgage, IT IS VERY DIFFICULT TO SHORT SALE. Lenders need to see that you simply cannot pay them back before they will short sale.

12. Who owns the house after a short sale?

The purchaser of the house is the owner after a short sale just as in a normal sales transaction. The mortgage lender is paid off and the previous homeowner moves to a different home.

13. What do I do about my back property taxes when I do a short sale?

Just as in a normal home sale, property taxes are the responsibility of the homeowner until the date the sale is closed. Then they become the responsibility of the buyer or investor.
If your property taxes have not been paid this will affect the negotiations between the buyer and the bank, so you must inform me or any buyer of those taxes owed.

14. Can I short sale my own house?

No, this would be illegal. A short sale must be an “arms length” transaction. You cannot short sale your own house nor can close members of your family or friends do one for you either.
In a short sale, the lender is agreeing to discount the mortgage amount due to legitimate hardships; but not so that the homeowner can make a profit. No money from a short sale transaction can be paid to the homeowner (seller). Lenders will not approve any short sale in which they suspect the foreclosed homeowner will profit. (Or a family member)

15. Can’t I just go down to my branch or mortgage broker and talk to them about reducing my mortgage?

Unfortunately, things don’t work that way anymore in the banking business. Once you obtain a mortgage, it typically gets bundled with other mortgages and sold to other banks or investors. Oftentimes, the company to which you make your payments is not even the bank who holds your mortgage; they are simply paid to “service” the loan.
Also, once you mortgage lender begins the foreclosure process, the file is turned over to a loss mitigation company so the “lending” departments or the branch no longer have anything to do with the loan.
All negotiations regarding the short sale are done between the Listing Agent and whatever loss mitigation or asset management company works for the lender and negotiating with the investor. (Owner of Loan)

16. Do you handle houses in my area?

My focus is in Orange County; however, we will consider listings in other areas of Southern California. In addition, I work with other short sale specialists in the region and can often refer your case to another Real Estate Broker if I cannot help you.

17. Do you handle duplexes, apartment buildings, condos or commercial property?

I do handle all residential properties in all price ranges, but currently I do not handle commercial properties.

18. My house is already listed for sale on the MLS but isn’t selling; can I do a short sale?

Yes, you can and it is relatively common. Some lenders even require that a house be listed for sale before approving a short sale in order to show that a discount is necessary.

19. My house is really nice, why is the short sale offer so low?

Sellers often have an emotional attachment to their home and often feel a short sale offer is too low. It is important to remember a few things. First, the seller in a short sale can never receive any money in the transaction; therefore it should be of very little concern at what price the short sale is done. The only real exception is when the seller has tax liability concerns. Otherwise, the price should not matter to the seller.
The important factor in a short sale is whether the lender will accept the price. Lenders OFTEN accept prices for short sales that normal homeowners or Realtors are surprised at. Discounts of 30% are no longer uncommon. This happens for several reasons:
1. Sellers are often in denial about how bad the market really is for housing and therefore how far the value has declined.
2. Lenders don't like the foreclosure process any more than homeowners do (especially in California). Lenders incur substantial costs during a foreclosure process that can last more than 12 months. They have attorney fees, filing fees, publication fees, lost interest on the money that is tied up, property taxes, insurance, maintenance costs as well as the potential for vandalism of the vacant home. This is all BEFORE having to try to sell the home as a bank owned REO and pay commissions to do that. A short sale is a way to avoid some or all of these costs. If a lender calculates his cost of eviction at $50,000 for a house, they will often take a $40,000 loss on a short sale instead and they will be better off.
3. Lenders are emotionless businesses. They simply look at the numbers and make a decision. If the numbers favor a short sale, they will accept even if it means taking a large loss. They do not want to wait; they want the deal done NOW. These numbers and factors are what a short sale investor is focused on. In a poor housing market, most of these numbers have very little to do with how nice a home is.

20. Should I accept a short sale offer from an investor?

Obviously this is up to each individual, but we believe the only real reason to reject an offer is because you know that you will have a tax problem. Again, most sellers who have a short sale qualify as insolvent with the IRS and can therefore avoid taxes on the short sale if the deal is properly negotiated. Otherwise, neither you nor your Realtor should have a concern about the price. (With in reason)
*Please be aware of new tax laws that retain to investors purchasing a short sale.

21.My Real Estate Agent doesn’t know about or doesn’t recommend a short sale, what do I tell him/her?

If the foreclosure process has already been started, do not let anyone stall you or delay you from taking action! The biggest mistake for a homeowner in foreclosure to make is to do NOTHING. Before you know it, you will be left with no options and you will be evicted. You must deal with your situation ASAP, and if your agent does not want to look into all the options for fear of losing his commission, or lack of experience, you should look for a new agent.

22. Who pays the commission on the sale of my house?

We charge a nominal administration fee; however, the entire brokerage commissions are paid by the lender.

23. Is my house too cheap or too expensive to do a short sale?

1. Homes in any price range can be eligible for a short sale as long as the basic criteria are met as earlier described.

24. Are short sales guaranteed to work?

No. Even though short sales are increasing they are still fairly rare, as I have stated. All the criteria MUST be met for a bank to even consider a short sale. It is not easy to convince a bank that the market value of the home is lower than what they are owed. They do not like to take a loss on a loan.
Then the bank must be convinced to discount the mortgage enough to make it viable for a potential approval. This is even more difficult for the fact that the lenders are overwhelmed, understaffed and unprepared for the amount of proposals coming to them.
In many cases, I do all the paperwork and wait several weeks only to be denied. Again, homeowner continues to own and live in the house if he chooses.
If the lender does not approve the short sale no transaction occurs. The purchase agreement becomes void and the listing continues.

25. What if a bank doesn’t accept the short sale?

Again, if the bank doesn’t accept the short sale offer, there is no transaction and the home is still owned by the foreclosed homeowner and the foreclosure process continues.

26. How long does a short sale take, I need to get out now!

A short sale takes approximately 60-120 days to complete and sometimes longer. This is very important. This complicated process takes time so to have the option of a short sale, you must act soon. If you wait until 1 week before eviction, no one can help you do a short sale. It is simply impossible. DO NOT WAIT.

27. Why do I have to sign a Borrower's Authorization?

By signing a Borrower's Authorization, you give the lender permission to speak to me about your loan. That is all it does, but it is necessary. An authorization must be filled out for each mortgage.

28. How does the agent get paid?

I make a standard real estate sales commission that is paid by the lender only in the event of a successful short sale.

29. Do I have to move after I do a short sale?

Yes. After the short sale transaction, the new owner will own the house and the seller must move, just as in a normal sale.

30. I have heard that I could still owe taxes after a short sale, is this true?

Yes, this is true but it is not that simple. If this is a concern to you then you need to consult an attorney or CPA, but without trying to get too complicated, I can provide our experience with this problem.
When a lender “writes off” part of a loan, it has to account for where that money went. In the case of a short sale, it is determined that the amount goes to the foreclosed homeowner, since it is their personal debt that is forgiven so that the house can be sold. The bank can account for this in one of 2 ways.

Either the bank keeps the amount of the discount on the books as a bad debt and they can go through the courts to try to collect from you on the bad debt. Or the bank can issue a 1099C form to you for the amount forgiven and that amount can be considered "phantom income" for you.
Again, please consult a CPA or tax adviser if you have specific questions. When you receive the 1099C, the control is in your hands as to how to treat the 1099C income on your return. When the bank keeps the debt, the choice is in their hands as to whether they come after you to collect.
Most importantly, even if you receive the 1099C and declare it as income, as you should do, there is a good chance you will owe very little tax if any at all. This is because there is an IRS rule regarding “Insolvency”, which essentially says if you are insolvent (more liabilities than assets) at the time of the short sale, and then you don’t have to count the 1099C as income. There is an IRS form to fill out to show you are insolvent. See www.irs.gov As of 12/20/2008 President Bush did sign a new law stating that if you fit certain parameters you will not owe or be taxed on “Phantom income”. Called the “Homeowners debt forgiveness Act”.

The bottom line is the typical people who are in a foreclosure or short sale situation have little income or assets, so the 1099C is usually not counted as income or the tax rate you might pay are very low. Again, ask your tax person or you can call the IRS for free advice.
If you are concerned about owing a debt after the short sale, it is important to remember that if you do not use a short sale to satisfy your lender, then the foreclosure process will continue. If the lender takes back the house and has to sell it for less than you owe, YOU CAN STILL BE HELD LIABLE for the amount they lost. The bank can go after you in court to collect the deficiency. So whether you choose foreclosure or short sale, you still have the potential to owe a liability to the bank. Clearly a short sale is the better way to go considering all things.
So the short answer is that you can owe taxes both after a short sale or after a completed foreclosure; however, if a short sale is done properly, the tax can often be avoided in large part. Again, each situation is unique.

31. Will a short sale save my credit?

See question #6

32. I am behind on my mortgage payments, but not yet in foreclosure. Can I do a short sale?

Yes and this is happening with much greater regularity. Sometimes, these are actually the most attractive short sales for a buyer/investor and a lender because a lender can avoid ALL the costs of foreclosure with a short sale before foreclosure is filed. In these cases, it is more important to have a very good "hardship" story to explain to the lender why you are unable to make the payments.

33. My house needs a lot of repair; can you still do a short sale?

Yes, though it can make the process more difficult because the price must be substantially lower. The key is to be able to show the bank's appraiser all the work that needs to be done. Let me know if this is the case with your home.

34. Can you do a short sale on my house?

I will evaluate it and if it is a short sale candidate, I will ask for some more information and then proceed from there. You are under no obligation to list or sell your property by speaking with me.

35. I have more than 10% equity in my house; can I still short sale to you?

Probably not. You are much better off seeking my services for a normal open market sale or a refinance.

36. My husband/wife/brother is also on the deed with me but doesn’t want to sell; can I still do a short sale?

No. ALL parties listed on the current deed or mortgage must sign the short sale purchase agreement. There are no exceptions to this.

37. I have other liens (i.e. mechanics, IRS, court judgments) on my house; can I still do a short sale?

Yes, but again, it gets much more complicated and will take longer. If this is the case on your home, be sure to COMPLETELY list all potential liens you have. Each lien holder will have to be negotiated with individually. A short sale in this circumstance will take longer than 60 days.

38. I am an heir to an estate that has a mortgage it (or I) can’t afford to pay. Can I do a short sale?

Yes, this is common.

39. I have 2 or 3 mortgages on my house. Can I still do a short sale?

Yes, each mortgage or Line of Credit (HELOC) can be negotiated individually. It is important to know which mortgage filed the foreclosure or if more than one are in foreclosure, which filed first.

40. I have gotten dozens of cards and letters saying they can help me with my foreclosure, but they never do, how is this different?

There are many different types of people who work in the “distressed property” area. Some are legitimate, some are not. Many claim to be able to work miracles on your credit or save your house. Most will either charge high upfront fees or cannot really help you. Most will only “help you” if you have a large amount of equity in your home. They will use several techniques to get you to sell your house to them and take some of your equity. Try your best to avoid them. If you have any questions about one in particular feel free to call me and ask questions.

41. Is my house a good candidate for a short sale?

Again, call me direct. Joe Duenas 949-632-3819

42. I have already declared bankruptcy; can I still do a short sale?

Yes, but it is more difficult. If the property is currently involved in a bankruptcy, the lender is not the only one who has to approve a short sale.
The bankruptcy trustee will also have to approve it. This creates an additional layer of oversight and an additional party which wants to squeeze all it can out of the homeowner. It can still be done, but all conditions have to be perfect.
If you are considering bankruptcy as a way to stop the foreclosure, be sure to get good legal advice, since it is possible that a bankruptcy may not completely stop a foreclosure. Lenders often can get the bankruptcy set aside to continue to pursue a foreclosure.

In closing, there are still many unanswered questions and every situation has different factors that pertain strictly to you. I have committed many years helping homeowners and I look forward in helping you.

Respectfully,

Joe Dueñas
First Team Real Estate
949-632-3819
joe@joeduenas.com
www.LiveSouthCounty.com

How did we get here? (Mortgage Crisis)  TOP

Every day it seems as if there are new stories about predatory lending, foreclosures and people in trouble. Over-investment in housing, "irrational exuberance" and fraud has led to the high rate of foreclosures we see today.

Who's to blame?

Lenders have been predatory, fraudulent and also greedy—they thought that housing values would continue to radically increase the way they did in the late 1990s into the 2000s, forever. But borrowers have been overconfident, too.
One might think that banks would have little interest in giving a loan to a customer that may default, but banks move the risk onto companies that will purchase bad mortgages, giving them more of a reason to take a chance on someone with shaky credit or minimal requirements.
Much talk has focused on sub-prime loans, but these loans are not necessarily a bad thing. In the 1990s the federal government asked banks to promote homeownership among low-income earners and minorities. It makes sense to think that homeownership is a good thing for our communities and society. Sub-prime products have been effective in helping people buy homes who would otherwise be unable. Since the borrowers are more risky, the interest rates reflect the risk on the part of the bank, and are therefore higher.

The key issue is to understand how a sub-prime loan can be used as a predatory loan. Predatory loans are sub-prime loans that can involve one or more of the following:

2/28 ARM—a loan with a very low interest rate the first two years, and for the next 28 it goes way up (I'll discuss this more later). Liar Loan—Buyers apply for loan with self-stated income. Since no one is checking they can inflate their earnings to buy a nicer house. 100 Percent financing—Buyers does not have to put any money down on the house.
These loans often have incentives attractive to brokers who would push these products to make more money. The problem is that those borrowers using a sub-prime loan to buy a house may not have been told the risk they were taking. A few years ago it was hard to imagine that housing values would drop (values in Santa Ana & Anaheim have dropped 30 — 40 percent in the last two years!).

The game plan was to buy a house with a super low interest rate and then refinance when the rate jumped, assuming that the value of the house increased during that time. But in many markets, the value dropped. Rest assured that this scenario was played out in every city and price range.

As a result, thousands of people are losing their homes!

Here are a few more details about the mortgage and foreclosure market:

*As of the writing of this article, the United States has experienced 100,000 foreclosures each month for the past five months.
*Sub-prime loans make up 10 percent of the mortgage market.
*Forty percent of sub-prime loans are liar loans.
*This is an under-regulated market. Since 2000, there have been 90,000 lenders who have gone into the mortgage business.
*Prime loans, loans given to people with strong credit, dropped from 66 percent to 45 percent of the market from 2002 to 2006.
*Exotic mortgages, like interest only, piggybacks, Arms' and "jumbo" loans made up the majority of the market (52%) for the first time ever in 2006.
*One-eighth of all new mortgage originations were considered sub-prime, but 60 percent of all new foreclosures are sub-prime loans. Of all the sub-prime loans originated, 78 percent were closed on a "teaser" rate. This low rate was basically the 2/28 ARM I mentioned above. Within two years the payment would jump significantly. Most sub-prime loans also carried monster pre-payment penalties that would make refinancing out of the 2/28 ARM nearly impossible until the two years had expired. What most homeowners who continued to make payments found, was that after the two year period, they were making significantly higher payments on their mortgage for several months BEFORE their attempt to refinance was complete. Many couldn't sustain the financial shock.
*Early in 2007, when the mortgage industry tightened their standards, it was assumed that 15 — 25 percent of all the people who previously qualified for the sub-prime loans no longer qualified. This makes it impossible for them to refinance as their mortgage broker probably told them they could 2 — 4 years ago when they bought the house.
*Since late 2006, over 30 sub-prime lenders have gotten out of the market, many having filed for bankruptcy protection.

“Why Most Short Sales get declined”  TOP

“A cycle of inefficiency” is the main reason why so many deals get declined. Regarding large Bank institutions, the mortgage industry, large Real Estate Brokerage firms, sales agents, they are far from being extremely organized and efficient. Our business is very cyclical and it usually jumps form one extreme cycle to the next. When these entities are in the mist of a BOOM—profits wipe away and forgive all inefficiencies. However, when we cycle into a downturn it’s a scramble to cut cost, blame and just survive.

We our currently involved in one of those cycles and the larger the institution the slower they are to add the necessary systems, guidelines, policies and changes that would ultimately help them and their customers.
The Short sale strategy is not a new “Exit” strategy and it has been around for a long time. However, we have experienced a nine year run up and these institutions where not in need of a “Loss Mitigation department” They where not in need of a highly trained staff of mitigators, systems, call centers and a proper flow. The real estate community and all the affiliates where not in need of this either. So who was? Well the uncomfortable truth is…. They are learning as they go.

Even though I have a streamlined system, intimately knowledgeable of the mortgage process, know the real estate business backwards and forwards…..I am at the mercy of working with a whole new group of people and entities who have never experience this cycle as part of their business.

This is the underlining reason why so many Realtors and attorneys say this about short sales…..”to much work, to much uncertainty, to unregulated, too much time and not enough money!” With that said, you can see why very few invest in the time, energy and effort it takes to learn and develop the systems and skill necessary to make this part of their business.

“Making sure your Short Sale gets approved”  TOP

My business is like many others and that is, you will always pay dearly for valuable training in becoming the best in your field. That training will either come in the form of years of training, development of systems, working side by side with top professional and results. Or it will come in the form of “school of hard knocks”. In my case it was both!

The real estate and financial market is a living breathing entity and is constantly changing. It is very easy to be constantly behind the learning curve when the information that is being disseminated is outdated . Today’s problem are usually yesterdays oversight and that is the same method of training that is being reproduced in today’s market. By the time the information is out there, there is a new set of challenges that need to be addressed.

My staff and I constantly keep our pulse on these challenges by focusing solely on this process , systemizing the process, networking directly with the largest banking institutions and providing ideas to them that get incorporated.

The Proper documentation  TOP

Making your case move through the process you needs to speak the investors language and know their criteria's. Before submitting a file it must be well organized, detailed, and have updated information.

___ Authorization form to discuss Loan with Joe Duenas
___ Copy of Listing Agreement
___ Financial information Sheet (Budget)
___ Copy of Tax return(s) for year _________
___ Copy of last 2 Bank Statements.
___ Copy of current Payroll
     Other income (If applicable) __1099’s, Alimony etc.______
___ Written Letter: Financial hardship position.
___ California Purchase Contract with Counter Offers
___ Itemized Sellers net sheet with existing offer. (Escrow Drafted HUD 1)
___ Preliminary title report (Property Taxes, Liens etc. search)
___ Termite report
___ Property Taxes (Confirmed payment or arrears)
___ Detailed repair work (Estimates)
___ Documentation on any arrears
___ BPO (Freddie Mac standard)
___ Comparable home sales and sold to validate offer.
___ Cover letter from associate summarizing file.
___ Well organized & packaged file with Loan(s) # written on every document

“The key to understanding the short sale submission /negotiation process is to understand how lenders look at their investment and mitigate their losses. This is where most of the timetables of the process get lengthy.”

Testimonials  TOP

I personally got in over my head. With two house payments , temporary layoff and depleting my savings I was a under a lot of stress. I ask my lender for help but all I got was the run around. Fortunately, I was introduced to Joe. It took over 4 months but he was able to sell my home and renegotiate my short sale that helped me with my crisis! I had so many questions and concerns but he answered them all and it was so comforting knowing he was on my side! Thank you and I will be forever grateful! Teresa C.

I have been very successful in the mortgage business as a loan rep. However, when it came to getting my home sold with a short sale I was totally unprepared! It deals with a whole different aspect of the mortgage business and I was excited and impressed when Joe explained it to me. More importantly, I was totally against it, by others who suggested it, but it was simply out of fear. I knew I was in a crazy business but it was refreshing to know there are people who specialize in this niche and can provide such help, thanks Joe Gina B.

WOW! We got a job transfer out of state and we where so excited! But the reality set in that we owed more on our home then it was worth and there was no way to rent it out (without a $1,600 a month negative). Everybody told us that a short sale was not possible because we where not experiencing a hardship. However, Joe explained that hardships come in all different shapes and sizes and he was right! I would recommend him to anybody!!!! Shaun & Teresa